As an update to our previous release which discussed the Canadian Securities Administrators (the “CSA”) amendments to the Canadian rights offering process and the impact this had on the availability of Form F-7 in such offerings, each of Tintina Resources Inc. (“Tintina”) and NXT Energy Solutions Inc. (“NXT”) have filed a Form F-7 with the United States Securities and Exchange Commission (the “SEC”) in connection with each of their Canadian rights offerings.

Prior to the amendment of the Canadian rights offering process by the CSA a substantial disclosure document, such as a prospectus of offering circular, was prepared for use in Canada and formed the basis of the disclosure document used in connection with the Form F-7 filed with the SEC. However, following the amendments there was uncertainty as to whether Form F-7 could be utilized in the new Canadian rights offering regime given the limited amount of disclosure required, the lack of regulator review of the rights offering materials in Canada and, most importantly, concerns of how to protect against U.S. Securities Act liability given the limited disclosure requirements in the new regime.

It appears that the initial concern over the availability of Form F-7, helped by the SEC no-action letter, and the related potential U.S. securities liability has been overcome by at least two issuers. Below is brief examination of the filings made by each of Tintina and NXT.

Tintina Resources Inc.

Tintina is a British Columbia, Canada incorporated mineral exploration company focused on the development Black Butte Copper Project located north of White Sulphur Springs in Montana. In addition, Tintina is a reporting issuer in Canada and currently has no reporting obligation with the SEC under United States securities laws.

On September 14, 2017, Tintina filed the first Form F-7 under the amended Canadian rights offering regime. Tintina’s Form F-7 included the Canadian Notice of Rights Offering and the Rights Offering Circular. As part of the Rights Offering Circular Tintina also included certain specific U.S. disclosure that otherwise would not have been included if the offering was not extended into the United States under Form F-7. More importantly, Tintina included as exhibits to the Form F-7, among others, the (i) audited financials for the most recently completed fiscal year, (ii) management discussion and analysis for the most recently completed fiscal year, and (iii) most recent management information circular. Since Tintina is not an SEC reporting company the aforementioned documents were not available to be incorporated by reference and had to be edgarized and filed as exhibits to the Form F-7 filed with the SEC. However, it is important to note that as part of the Notice of Rights Offering included as part of the Form F-7 all U.S. shareholders were encouraged to review, in conjunction with the Rights Offering Circular, Tintina’s Canadian disclosure record filed on SEDAR.

NXT ENERGY SOLUTIONS INC.

NXT is an Alberta, Canada incorporated technology company focused on providing its proprietary Stress Field Detection remote sensing airborne survey system to oil and natural gas exploration companies in order to evaluate large land areas for exploration potential. In addition, NXT is both a reporting issuer in Canada and a foreign private issuer required to file reports with the SEC pursuant to the United States Securities Exchange Act of 1934, as amended.

On September 26, 2017, NXT filed the second Form F-7 under the amended Canadian rights offering regime. Similar to the Tintina filing, the Form F-7 filed by NXT included the Canadian Notice of Rights Offering and the Rights Offering Circular. In addition, because NXT files reports with the SEC, NXT incorporated by reference, rather than file as exhibits, certain Canadian disclosure documents into the Form F-7. More specifically, NXT included the (i) annual report on Form 20-F for the most recently completed fiscal year, (ii) unaudited financial statements for the three month period ended March 31, 2017, (iii) management discussion and analysis for the three month period ended March 31, 2017, (iv) unaudited financial statements for the six month period ended June 30, 2017, (vi) management discussion and analysis for the six month period ended June 30, 2017, and (vii) most recent management information circular. Similar to Tintina, both the Notice of Rights Offering and the Rights Offering Circular included as part of the Form F-7 encouraged all U.S. shareholders to review NXT’s Canadian disclosure record filed on SEDAR in conjunction with the Form F-7.

THE TAKEAWAY

Canadian rights offerings are a useful non-dilutive capital raising tool that many Canadian issuers seek to utilize. The SEC no-action letter provided confidence that Form F-7 would be available to Canadian issuers that sought to extend their rights offerings into the United States under the revised regime. However, the SEC no-action letter also required issuer’s and their counsel to consider the whether the information contained under the Form F-7in the new Canadian regime would satisfy the antifraud and liability provisions under the U.S. Securities Act. While the SEC no-action letter was reassuring to the market, the reaction by counsel in the cross-border space was initially conservative given the potential for U.S. securities law liability. Many proposed Canadian rights offerings under Form F-7, until Tintina and NXT, either died or were restructured to comply with an exemption from registration under the U.S. Securities Act such as Rule 506(c). The filings by Tintina and NXT are important because it signals that issuers are requiring counsel to be practical in their approach and to thoughtfully consider and balance the U.S. securities law liability issue against an issuer’s need for capital when contemplating a Form F-7 filing.

In each of the Tintina and NXT filings not only were certain disclosure documents either attached as exhibits or incorporated by reference into the Form F-7, but all U.S. shareholders were encouraged to review the full body of Canadian disclosure filed on SEDAR by each of Tintina and NXT. This is an important point because it potentially creates U.S. securities law liability based on the entirety of such disclosure record and not just the specific documents included as exhibits or incorporated by reference into the Form F-7. While the concern over U.S. securities law liability is legitimate, the re-emergence of Canadian issuers utilizing Form F-7 was always going to be the practical outcome. The continuous disclosure requirements under Canadian securities laws requires that such publicly filed documents neither contain an untrue statement of a material fact nor omit to state a material fact necessary to make a statement not misleading. This requirement applies to all statements and disclosures contained in such filings, including the financial statements, the management discussion and analysis and, where applicable, the annual information form. In addition, the information presented in the financial statements, together with other financial information included in such filings, must fairly present in all material respects the issuer’s financial condition, results of operations and cash flows.
Issuers when faced with the choice of raising non-dilutive capital or excluding U.S. shareholders or abandoning a rights offering have a clear choice to make. Issuer’s must either have confidence in the veracity of their Canadian disclosure documents as filed with the Canadian securities regulators to guard against U.S. securities law liability or seek an alternative method to raise capital.

If you are an issuer contemplating a rights offering or would like more information regarding the foregoing please contact Daniel D. Nauth at 416-477-6031 or dnauth@nauth.com.